Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
Islamic Microcredit as a Tool for Poverty Alleviation: The Case of
Bangladesh
Helal Uddin and Munim K Barai
It is obvious and we cannot ignore the role of microfinance to boost the economy through
poverty alleviation, new employment creation and improving socio-economic condition of
poor people in the developing countries. It is also surprising that while formal banking
system fights to keep their nonperforming loan (NPL) at a minimal level, the MFIs achieve
their NPL almost zero without any collateral status. According to microcredit summit 2013,
micro financing has reached to more than 175 million families with a total loan amounted
USD 78 billion.
Despite the widespread success of traditional microfinance all over the world, this mode of
financing the poor is infeasible especially in countries where majority of the population is
Muslim. This is because of the fact that conventional microfinancing involves interest which
many Muslims are barred by the religious to be engaged with. Interest is prohibited in Islam
as well as in other religious. This is based on the idea that money cannot give birth to more
money.
Thus a huge demand of Islamic microfinance from the borrowers has been responded very
quickly through the introduction of Islamic microfinance in many financial systems. An
estimated 255 financial service providers worldwide offer Sharia-compliant microfinance
products to approximately 1.28 million clients. Of them, approximately 82 percent reside in
only three countries: Bangladesh, Sudan, and Indonesia. As Islamic microfinance growing
fast, but how much it will contribute to poverty alleviation, creating new employment and
improving socio-economic condition of poor people?
An ample amount of research has been done to find out the efficiency of Islamic
microfinance, difference between Islamic and conventional microfinance and so on. But
this study is proposed to explore whether Islamic microfinance has any impact on size and
duration of the loan on income; if so, in which direction?
To answer the problem, a simple regression equation will be formulated where income of
the individual will be the dependent variable and loan size and duration will be independent
variable. Other control variable will be age, family size and education level. As we know,
the Rural Development Scheme (RDS) alone serves 67 percent of the total Islamic
microfinance market in Bangladesh. So we propose to take RDS as a sample model for
Islamic microfinance. Necessary data will be collected by structured questionnaire survey
and personal interview. The survey data then will be analyzed using statistical software
such as SPSS.
From the proposed research, we are expecting that the relationship between income and
loan size will be positive and significant, and the relationship between income and duration
of loan will be the same as the size of the loan and income.
Track of Research: Islamic Finance
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Helal Uddin, Doctoral Student, Ritsumeikan Asia Pacific University, Japan, Email: helaud15@apu.ac.jp
Munim K Barai, PhD, Professor, Ritsumeikan Asia Pacific University, Japan, Email: baraimk@apu.ac.jp